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PDC's 2012 Trio: Wattenberg, Marcellus, Utica

Denver-based Petroleum Development Corp. (PDC) has agreed to sell its Permian Basin assets and intends next year to focus on the Wattenberg Field in Colorado, the Marcellus Shale in West Virginia and the Utica Shale in Ohio.

PDC is selling its remaining Permian assets to Concho Resources Inc. for about $175 million with closing expected during the first quarter. The deal follows PDC's sale of primarily noncore Permian assets for $13.3 million. Proceeds from the two transactions are about $188 million before tax and will be used to pay down debt and fund the 2012 capital program.

"These asset sales will allow PDC to focus our capital and attention on our liquids-rich horizontal Niobrara drilling program in the Wattenberg Field of Colorado, our horizontal Marcellus drilling activity in West Virginia and our newly established position in the wet gas and oil windows of the emerging Utica Shale play in Ohio," said PDC CEO James Trimble. "The Niobrara, Marcellus and emerging Utica should provide PDC with a substantial multi-year inventory of repeatable high-return drilling projects.

"Our plan to seek a working interest partner in the Utica Shale play is proceeding as the company continues to increase its leasehold position. We expect to finalize our Utica Shale plans during the first quarter of 2012."

The properties provide Concho with more than 170 additional Wolfberry locations and 13 MMBoe of proved reserves, said Wells Fargo analyst David Tameron. "We valued [PDC's] Permian position at $200 million or $8.50/share in our $55 net asset value," he wrote. "[The] deal seems to make sense for both sides with [Concho] adding bolt-on inventory in the Permian and [PDC] divesting an area that was not large enough for the company to truly grow and should also take equity off [the] table and relieve funding concerns."

PDC's capital budget for 2012 is expected to be $284 million and includes $198 million of development spending, 85% of which will be invested in the Wattenberg Field for an expanded horizontal Niobrara drilling program, refractures (refracks) and recompletions, and nonoperated projects, and $86 million for investment in acquisitions, exploration, leasehold and miscellaneous expenditures. The budget includes 266 drilling, completion and refrack/recompletion projects, PDC said.

The company estimates 2012 production will be 53 Bcfe, about 33% oil and natural gas liquids (NGL) and represents a 21% increase over estimated 2011 production, proforma for current 2011 production guidance of 46.5 Bcfe after deducting production related to the sale of the Permian assets.

In September PDC Mountaineer, a joint venture of PDC and Lime Rock Partners V LP, agreed to pay $152.5 million to National Grid plc for Seneca-Upshur LLC, including the rights to an estimated 90,000 net acres in the Marcellus Shale in north central West Virginia (see Shale Daily, Sept. 29).

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